Although the distinctive corporate governance spirit governed by stock ownership rules, the capital market, and business culture differs, similar legal characteristics and legal problems exist. Corporate law governs interactions between corporations, investors, shareholders, directors, employees, lenders, and other interested parties, such as consumers, the community, and, oddly enough, the environment.
The term "sources of corporate law" quite often is associated not only with the legislative acts of the bodies regulating the activities of companies and enterprises, but also with all laws that somehow affect commercial activity in the state. In some cases, this may include issues related to corporate governance or even financial law. The sources of these two seemingly different branches of law are very often the same.
The main types of sources of corporate law in Russia
We present the main sources built in descending order of legal force:
- Constitution.
- Civil Code.
- All federal laws on securities, joint stock companies and business groups.
- Decrees and decrees of the government and the president.
- Normative acts of any federal bodies.
- The so-called local corporate acts.
- Judicial practice (as a source of Russian corporate law), including court orders. This is more relevant for countries of the Anglo-Saxon legal family. In Russia, this criterion in legal force takes the last place.
History
The first sources of corporate law were founded in England and changed significantly in the 20th century. In addition, these sources may vary slightly depending on the particular commercial organization. Such organizations are of several types:
- Corporation.
- Limited liability company.
- Unlimited company.
- Nonprofit company.
- Limited Warranty Company.
- Partnership
- Sole company.
Ltd
The main types of sources of corporate law include the charter of the organization or joint-stock company (if it is an LLC). Own limited company is an official form of business in several countries, including Australia. In many countries, there are forms of business units that are unique to a particular state, although, in general, their equivalents exist in global corporate business. Examples are limited liability companies (LLC) and a limited liability partnership (LLLP) in the United States. Other types of commercial organizations, such as cooperatives, credit unions, and state-owned enterprises, will rely more on corporate law sources directly related to the state.
Types of Companies
There are various types of companies, but the most common forms are:
- Limited liability company. Commonly used where organizations are formed for non-commercial purposes, such as clubs or charitable foundations. Members guarantee payment of certain (usually nominal) amounts if the organized community moves to insolvent liquidation, but otherwise they do not have economic rights in relation to the company. The sources of corporate law applicable to such an entity include its own charter and federal acts on joint stock companies.
- Company limited by share capital guarantee.
- A hybrid facility commonly used where a company is formed for non-commercial purposes, but the activities of such a community are partially funded by investors who are expecting a return.
- Company limited by shares. The most common form of organization being created used for business enterprises. Speaking about the sources of corporate law on which it relies, it is worth saying that in this case the situation is similar to the first type of company.
- Unlimited company with or without registered capital. This is a hybrid form similar to the previous example, but its members or shareholders do not enjoy limited liability if it is officially liquidated.
However, there are many specific categories of corporations and other business organizations that can be formed in different countries and legal fields around the world.
This guide is intended to help you find laws and information on corporate law issues. The goal is to provide useful, but not exhaustive, resources. If you are looking for resources to research companies and / or industries, this information will be very useful to you.
Research requires analysis and synthesis of information. No resource provides an exhaustive amount of information or data on any particular topic. You will have to clarify a lot in local authorities and learn from personal experience.
Legal advice
The concept and sources of corporate law is a rather complicated topic. Some of the key areas related to corporate governance include executive compensation, board composition, shareholder participation, and financial stability.
Keeping this in mind while conducting your research in this difficult area, you can additionally study:
- Laws and regulations governing corporate law. They are its main sources.
- Government agencies that control corporate law.
- Practical and teaching aids, contracts.
- Corporate acts as a source of civil law.
- Practical and scientific articles.
- Data on executive compensation, agreements with shareholders, etc.
Corporate governance
Corporate governance is, first of all, the study of the relationship of power between the senior officials of each particular corporation, its direct board of directors and those who choose them (shareholders and employees). It also applies to other stakeholders, such as lenders, consumers, the environment and the community as a whole. One of the main differences between different countries in the internal form of companies is a two-level and one-level management system.
The United Kingdom, the United States, and most of the Commonwealth countries have uniform, uniform and universal boards of directors. In Germany, companies, as a rule, have two levels, so that shareholders (and employees) elect a supervisory board, and then he chooses a board. It is possible to use two levels in France and in new European companies (Societas Europaea). In Russia, there is a mixed model, which, in fact, is closer to German and French. The system and structure of corporate law sources does not change much depending on the type of company, differing only in the algorithm for adopting charters.
Scientific aspect
The latest legal literature, especially from the United States, has begun to address corporate governance issues in a scientific manner. While the post-war discourse was based on how to achieve effective corporate democracy for shareholders or other interested parties, many scholars have moved on to discuss the law regarding issues with key agents.
From this point of view, the main issue of corporate law has the following nuance: when the main party delegates its property (as a rule, the shareholder’s capital, as well as the employee’s labor) to the agent (that is, the director of the company), there is a high probability that he will act in his self-interest, that is, it will be opportunistic. Reducing the risks of this opportunism, or agency value, is said to be central to corporate law goals. This also affects the concept of the subject of corporate law sources. If the main one is the company and its management, then, accordingly, a change in the approach to this management affects the type of sources.
USA example
The classification of sources of corporate law in Russia was briefly described at the beginning of the article. Now is the time to talk about the United States, because this country is an example of entrepreneurial ethics and culture, and therefore their corporate law is considered the standard that lawmakers around the world are guided by, including the relevant structures in Russia. Great Britain, as the first country in which corporate law was separately singled out, is also very interesting in this context.
Western countries
If we talk about the example of the West in the broad sense of the word, it is worth listing the types of sources of corporate law operating in the USA, Great Britain and Germany:
- In the USA, as a rule, it all comes down to one single document - the famous and illustrious Delaware Corporate Law.
- In the UK, the most relevant company law passed in 2006 (CA 2006).
- In Germany, these are laws with unusual and complicated names for a Russian person - Aktiengesetz (AktG) and Gesetz betreffend die Gesellschaften mit beschränkter Haftung (GmbH-Gesetz, GmbHG).
The system and structure of corporate law sources
Corporate acts, as a rule, set out both binding rules and those that can be derogated from when appropriate. The first category includes everything related to the dismissal of management, a meeting of boards of directors, the functioning of the company and other vital and irreplaceable things. Examples of such rules that employees and shareholders can change and choose as necessary are:
- Which of the important procedures should or should not be carried out at general meetings.
- When exactly, at what time, how all dividends are paid to all employees (or shareholders).
- How many members of the board of directors or contributors (with the exception of the minimum set forth in the law or charter) can amend the constitution, charter or any other important document.
Anglo-Saxon legal family
In fact, the so-called memorandum of association in the countries of this family is often the main document and has the right to partially (or completely) regulate the activities of companies and their interaction with the outside world. In the classification of corporate law sources of the Anglo-Saxon countries, this document usually takes first place. It is worth recalling that all these documents listed in the article are directly related to the topic. These are the very sources of corporate law that regulate the work of all firms and corporations in the states in which they are accepted.
The charter (or by-laws), in turn, is a secondary document that governs some of the company's affairs. This practice is used mainly in the countries of the British legal family, but is rarely used in our country. However, our sources of law do not allow companies to conduct such administrative experiments, so any such acts are in a sense a violation. At the same time, in our country there are many businessmen who equip their companies according to the British-American model, bypassing the sources of law.
Various jurisdictions
It is worth mentioning separately that the constitution of a corporation in some situations is supplemented by various secondary acts, for example, a charter. Such agreements sometimes include shareholder agreements, which may even replace the charter or constitution of a company, firm or organization, being an independent jurisdiction. In addition, such agreements are generally confidential, which gives them an absolute advantage. Voice trusts are also a popular form of such acts of substitution. Company printing is prohibited in many countries of the world, but many still consider it an important jurisdiction, considering it as part of the constitution in the broad sense of the word.
Director Responsibilities
Most sources of law give company directors special moral obligations to the corporation itself and all its employees, as well as to shareholders, if any. In many developed countries, outside the English-speaking world, company boards are appointed by both shareholders and employees to determine company strategy. This is facilitated by the particularities of corporate law sources in the countries of the Anglo-Saxon legal family. This branch is often divided into corporate governance (which relates to various power relationships within the corporation) and corporate finance (as regards the rules for using capital).
Directors are also required to fulfill strict responsibilities and avoid conflicts of interest within the company that would harm its mission or make it suffer financial losses. This rule is so strictly enforced that even in cases where the conflict of interest is still purely hypothetical, the director is forced to give up any personal benefit.
The role of agents
A corporate body can only act under the direction of agents. Of course, their duty is to maximally productively promote the interests of the corporation whose business they conduct. Such agents have obligations to eliminate the fiduciary nature of their principal.
However, in many legal areas, company members are allowed to ratify transactions that, under a certain set of circumstances, may violate this principle. Most sources of law also widely recognize that this principle should be repealed in the constitution of the company.
Director Responsibility
Since the forms of sources of corporate law are the constitution of the company and its charter, they speak not only of the obligations of individuals, but also of their responsibility in case of failure to fulfill these obligations. The level of skill and care that the director must demonstrate is usually described as acquiring and maintaining sufficient knowledge and understanding of the company’s business to enable him to properly perform his functions.
This obligation allows the company to demand compensation from its director, if it can be proved that he did not show reasonable skill or concern for his subordinates, which led to the company incurring losses. In such circumstances, when the company continues to trade, despite the predictable bankruptcy, the directors of this organization may be forced to bear responsibility for trade and financial losses. Managers are also tasked with exercising their powers only for the proper purpose. For example, if a director were to issue a large number of new shares not to raise capital, but to reject the potential threat of takeover by another company, this would be a wrong goal.
American example for Russia
The system of corporate law sources in Russia is strongly oriented to the United States. But in America, this system is quite confusing. It is worth listing some sources relevant to the United States and largely similar to Russian federal laws, as well as judicial precedents of the Supreme Court of the Russian Federation:
- Delaware Corporate Acts (validity period varies by court).
- The precedents of Delaware State Legal Services, as well as the US Supreme Court of Appeals, District Courts, and other federal courts that interpret Delaware law regarding corporate law and practice.
- Precedents of state courts of all 50 states and the District of Columbia that relate to state, private, and nonprofit enterprises and corporations.
- State-of-the-art information databases (terms of coverage vary by state).
Statutes and charters
A corporate law charter can be found in several titles of the United States Code, as well as in separate state codes. When searching for relevant charters in codes, it is best to start in a table of contents or in a topic index. Since the Delaware Code is particularly significant and several states follow the Model Business Corporation Act, it is worth mentioning in this article.
« -» . , - , , , , , ». , . , , .
Regulations
Corporate law rules can also be found in several articles of the United States Code of Federal Acts. These rules are best found using the CFR, which is available both in print and in Westlaw Magazine. Because of the significance of Delaware law in this area and for Russian law in particular, it is mentioned in all works and articles on the concept and characterization of corporate law sources. As we have already said, the Anglo-Saxon countries are ahead of the rest in this matter.
Conclusion
Russian corporate law is very much connected with the British, American and European experience, which affects the concept and types of sources of corporate law. This is not surprising, because our country switched to a capitalist economy relatively recently, while in the Anglo-Saxon countries this transition was carried out as early as the seventeenth century. However, Russia has a fairly universal system of corporate law sources, which is summarized at the beginning of this article. This system is not as large and complex as its European and American counterparts, but it ensures the normal functioning of the domestic economy.
Constitutional law, sources of corporate law, civil law - all these are integral elements of the modern legal system in any civilized country.